Why You Might Be Interested In Wenzhou Kangning Hospital Co., Ltd. (HKG:2120) For Its Upcoming Dividend

It looks like Wenzhou Kangning Hospital Co., Ltd. (HKG:2120) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Wenzhou Kangning Hospital's shares before the 3rd of June in order to receive the dividend, which the company will pay on the 28th of June.

The company's next dividend payment will be CN¥0.30 per share, on the back of last year when the company paid a total of CN¥0.40 to shareholders. Based on the last year's worth of payments, Wenzhou Kangning Hospital has a trailing yield of 3.7% on the current stock price of HK$11.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Wenzhou Kangning Hospital can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Wenzhou Kangning Hospital

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Wenzhou Kangning Hospital's payout ratio is modest, at just 35% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 38% of its free cash flow in the past year.

It's positive to see that Wenzhou Kangning Hospital's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Wenzhou Kangning Hospital paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Wenzhou Kangning Hospital's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, Wenzhou Kangning Hospital has increased its dividend at approximately 6.1% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Wenzhou Kangning Hospital? Earnings per share have been flat over this time, but we're intrigued to see that Wenzhou Kangning Hospital is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Wenzhou Kangning Hospital is halfway there. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Wenzhou Kangning Hospital is facing. Our analysis shows 2 warning signs for Wenzhou Kangning Hospital that we strongly recommend you have a look at before investing in the company.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.